Years Later, the Way a Rowland Friend Profited Is Criticized

By ALISON LEIGH COWAN

Published: August 9, 2004

People in New Haven's business and political circles are still talking about how Robert V. Matthews, a friend of former Gov. John G. Rowland's, made a fortune in 2000 by selling a downtown office building for $27.5 million -- 55 times what he paid a little more than three years earlier.

Now some investors say the deal was even sweeter than it initially appeared: they contend that state regulators, who approved the deal, discouraged another suitor from bidding against Mr. Matthews for the property.

In interviews, three investors in a rival investment group described running into walls in 1996 when they considered buying the office building. At the time, the building's owner, a regulated telephone company, had agreed to sell the property to Mr. Matthews for $500,000, a price that was less than $1 per square foot.

''We saw it and thought, 'Gee, that's quite an opportunity,''' said Robert Valley, a real estate investor who, along with his son, was in the rival group. ''When we tried to find out about it, we were rebuffed.''

Their lead investment partner, Ron Nicholes, said he was turned away when he tried to accompany two representatives of the Department of Public Utility Control on a building inspection, an official visit that by law must be open to the public. The investors also said executives of Southern New England Telephone, now part of SBC Communications, dissuaded them from submitting a backup offer on the building.

Beryl Lyons, a spokeswoman for the Department of Public Utility Control, said, ''Mr. Matthews did not get any special deal.'' She and other state employees said it is not the state's fault if a businessman makes money speculating on a public utility's castoffs.

Beverly Levy, a spokeswoman for SBC Connecticut, said the employees who were involved in the deal were no longer with the company. But, in an e-mail message, she said that the company had every incentive to ''pursue the best price'' in these situations. ''We'd be very poor business people if we did not,'' she added.

Federal investigators are looking into whether Mr. Matthews, a businessman, enjoyed special opportunities once Mr. Rowland, a former Republican congressman, became governor in 1995. Mr. Matthews was able to obtain loans and loan guarantees, leases with state agencies and the governor's intervention on two of his business deals.

Some of the state's help came just as Mr. Matthews was helping the governor rent out and sell his condominium in Washington at above-market prices, according to documents and testimony during the recent hearings into the impeachment of Mr. Rowland. The legislative panel's work was abruptly halted when Mr. Rowland resigned effective July 1, but federal investigators continue to examine his dealings with Mr. Matthews.

State lawmakers have expressed concern over the sale of utilities' property, saying they want to make it harder for insiders to profit when utilities divest property bought with ratepayer money. Current regulations do not require utilities to advertise when surplus property is for sale.

''The process is kind of loose and allows insiders to buy stuff,'' said Robert W. Megna, a Democratic state representative from New Haven. He said he intends to introduce legislation to require that utilities advertise major properties that they sell, to help mitigate the possibility of insider deals.

In Mr. Matthews's case, ratepayers were not directly affected by the sale to him, though they helped bear the cost when it was built in 1959. The utility did, however, list the sale as a $5.2 million shortfall in a special account it tracks for regulators, and it has the option of seeking to recover some of those costs through indirect means.

Mr. Megna counts himself among those who are troubled by the sale. In 1996, Southern New England Telephone was downsizing and thought it had a buyer for two of its properties in New Haven that had been on the market for more than six months.

One was 300 George Street, one of New Haven's largest and best-situated office buildings, near Yale University Medical School and major highways. The other was a handsome Art Deco high-rise at 227 Church Street, designed by Douglas Orr, that was the company's headquarters.

In June 1996, the telephone company agreed to sell both properties to Mr. Matthews and sought the permission of the Department of Public Utility Control the next month.

He agreed to pay $500,000, or about $1 per square foot, for the George Street property, and $2.2 million, or $10 per square foot, for the Church Street building. The telephone company's board approved both deals in a single resolution. But Mr. Matthews persuaded the company's executives to draft the papers as separate transactions that could be executed independently.

Regulators needed to sign off. To persuade them, the telephone company furnished two outside appraisals for 300 George Street. One came in at $2.9 million and another at $1.85 million.